KiwiSaver

There are calls for the Government to give KiwiSaver providers a set deadline to divest from companies involved in the manufacture of cluster bombs, landmines and nuclear weapons.

Four default providers – ANZ, Westpac, Kiwibank and Mercer – still have exposure to the industry despite a furore last year that drew public attention and condemnation to the investments.

Jacqui Dean, Minister for Commerce and Consumer Affairs, has said she expects KiwiSaver providers to drop their investments but has not said when.

The Green Party said that was not good enough.

“The National Government’s weak approach is letting too many KiwiSaver providers off the hook for behaviour that is unethical and possibly illegal.

“Parliament’s intention was clear when it passed a law banning investment in companies producing cluster bombs in 2009.”

Westpac has announced BTNZ, manager of the Westpac KiwiSaver Scheme, was already working to exclude exposure to munitions and tobacco across all KiwiSaver funds. The process is expected to be complete by the end of the year.

A spokeswoman for ANZ said its investment exposure was small.

“We completed full divestment of any direct investments by our funds in controversial weapons and tobacco in September last year,” she said.

“None of ANZ’s KiwiSaver funds invest directly in these types of companies.  We will be confirming details in the next few weeks of a new investment solution which will ensure there is also no indirect investment in these kinds of companies for members of our ANZ Default KiwiSaver Conservative Fund – none of the other funds have any indirect investments in these companies.”

She said the default fund still had some passive holdings because it invested in international equities via a passive index tracking fund.

“These holdings will shortly be transitioned to a fund managed by us to ensure that we have the flexibility to make further changes that our investors might want.   It’s been important to take the time to develop a future-proofed solution as we recognise that investor views on ethical investing will continually evolve and we want to ensure that we can continue to deliver the best possible investment performance for our members as changes are made.”

Sam Stubbs, head of new low-cost KiwiSaver provider Simplicity, said the funds should be suspended until they can exit their investment in banned weapons’ makers.

He said they had had enough time to make the change.

Simplicity uses the new Vanguard clean screen offer – a new global equities index fund that does not have exposure to cluster munitions, nuclear weapons-associated firms or tobacco.

BNZ today announced it would drop investments in companies involved in the production of cluster munitions, anti-personnel mines, nuclear weapons and tobacco or tobacco products.

BNZ has announced it will drop its investments in companies involved in the production of cluster munitions, anti-personnel mines, nuclear weapons and tobacco or tobacco products.

Its new responsible investment policy was announced on Thursday.

“In the last three-and-a-half years our funds under management have grown from $1.5 billion to almost $4 billion today, so we’ve undertaken a comprehensive review of our investment business,” BNZ head of wealth and private bank Donna Nicolof said.

In the past BNZ invested in commingled funds alongside other institutional investors.

“Our growth gives us the ability to leverage the scale across our wealth business to establish discrete mandates with investment managers, which gives us greater control of where and how our customers’ money is invested. This is a journey for us,” she said.

“We have been developing our approach to responsible investing over the past six months to ensure we have a robust framework where investment decisions align with both our investment beliefs and the changing attitudes of our investors and society.

“One of our key investment beliefs is that risk and return are equally important and we have made the decision to exclude companies involved in the manufacture of tobacco on the basis that there is no safe level of use and engagement with these companies is futile. The regulatory and litigation risks faced by this industry are significant.”

Nicolof said investment markets in New Zealand were maturing and ESG factors were becoming more important.

The policy affects all investments BNZ makes on behalf of customers, including in its KiwiSaver schemes.

There are calls to streamline the process of transfers between KiwiSaver schemes, to reduce the burden on providers and members.

KiwiSaver transfers are in the Financial Markets Authority’s sights. It has  requested information from all providers about transfers in the last quarter of last year, broken down to the number of days a transfer took to process.

Binu Paul, founder of SavvyKiwi, said there were problems with the current situation.

“There is too much lag between when an investment decision to move is made, and when their account balances actually get transferred, with some taking more than a month,” he said.

“That is assuming the process goes smoothly. I have seen instances where some users on SavvyKiwi have made a decision to move and even received the sign-up pack from the new provider, and they have simply sat on it for up to three months or more, til we have sent them a follow-up email.

“The issue here is about friction. When it comes to client on-boarding, we still have too many manual steps to go through to make things happen. For example, having to manually walk into a storefront with a copy of your ID and utility bill for identity and address verification. If you want people to take action, you have to take away as much friction as possible.”

He said providers also had to go through a lot of time-intensive activities that were ultimately redundant.

Many of the ID requirements were a result of anti-money laundering rules, he said.

“Having said that, you have to remember that KiwiSaver is like the reverse of a ‘gated-community’. Members are welcome to come in but once you are in, you are locked in till a certain time. There is not much mischief you can get up to during that time in terms of money-laundering.”

He said that should make it possible to make changes. “Once you are in a KiwiSaver scheme, after having gone through a check, when transferring to another scheme, do you need to go through the same checks again?  Can we use a Government-maintained central database of individuals that is a single source of truth when it comes to personal IDs and use that as a base for the transfer process?”

He said some of the checks seemed better suited to be deployed when people wanted money out, rather than when they transferred.

Ana-Marie Lockyer, general manager of wealth products and marketing at ANZ, the country’s biggest KiwiSaver provider, said all KiwiSaver providers reported against the requirement that member switches happened within 35 days, or 10 days for members of default schemes.

“We comply with this, assuming we have all the necessary information. We would support any moves to have the same timeframe for transfers whether someone is a member of a default or other KiwiSaver scheme.”

READ MORE: FMA: No hard lines on KiwiSaver incentives

2016 drew to an unpleasant close for many KiwiSaver funds, Aon’s latest industry survey shows.

In the December quarter, only cash funds posted a uniformly positive return.

Across all the other fund types, most funds went backwards over the three months – although  balanced, moderate and conservative funds were the most affected.

Over the quarter, Kiwi Wealth’s growth fund was the best performer, with a 4.2% return. The worst was Generate’s conservative, losing 2.9%.

Over the past year, Mercer’s high growth fund topped the table with 7.8% and Generate’s focused growth was at the bottom, losing 0.4%.

Guy Fisher, an investment consultant at Aon, said the main issue for the quarter was a rise in interest rates and bond yields, which drove negative returns for domestic and global fixed interest.

“Global shares performed well in anticipation of Trump’s pro-growth policies, but New Zealand shares fell. New Zealand is a high-yielding share market, attractive for investors looking for yield, but vulnerable as interest rates rise,” he said.

“We would expect this volatility to continue. There is uncertainty around the timing and the impact of Trump’s policies. The actual amount of fiscal stimulus may be lower than currently assumed as the government debt to GDP ratio is already very high and politicians will be unlikely to sign off on policies that send it significantly higher.

“Even if they do, passing legislation takes time and may not happen until near the end of 2017. In addition is appears that the Fed will be raising the cash rate this year (probably sooner rather than later), which could send long term interest rates higher. And there is political uncertainty in Europe with elections this year in France, Germany and the Netherlands.”